IB DP Business Management Quiz: Sources Of Finance

When a firm takes out more money than is in their account, it is known as an overdraft. An overdraft occurs when a company withdraws funds from their bank account that exceed the available balance. This can happen when a company has insufficient funds to cover their expenses or when they have a specific agreement with the bank to allow them to temporarily exceed their account balance. Overdrafts typically incur fees and interest charges, and they provide a short-term borrowing option for businesses to manage cash flow fluctuations.

NPO's (non-profit organizations) and sports teams are most likely to receive sponsorships because they often rely on external funding to support their activities. Sponsorships provide financial support and resources to NPO's and sports teams, helping them to cover expenses and achieve their goals. Additionally, sponsorships offer companies an opportunity for brand exposure and association with a cause or popular sports team, making them more inclined to sponsor NPO's and sports teams. On the other hand, pharmaceutical companies, financial firms, and technology companies may engage in other forms of marketing and partnerships, but sponsorships are less common in these industries.

Trade credit refers to a payment arrangement where a buyer is allowed to purchase goods or services now and make the payment at a later date. It is a common practice in business transactions, especially between suppliers and their customers. The seller extends credit to the buyer, allowing them to defer payment for a certain period of time. This arrangement benefits both parties, as it provides the buyer with flexibility in managing their cash flow while allowing the seller to secure sales and build customer loyalty. Therefore, trade credit is the appropriate term for the given scenario.

Dormant assets refer to unused assets such as old machinery. These assets are not actively being used in the current operations of a business. They may be sitting idle or stored away, not generating any value or revenue. Dormant assets are different from current assets, which are assets that are expected to be converted into cash within a year. Stock and inventory are also not the correct terms for unused machinery, as they typically refer to goods or products that are held for sale or production.

Venture capitalists typically look for start-up companies with huge growth potential, despite the inherent risks involved. This is because venture capitalists are willing to take on higher risks in exchange for the potential for significant returns on their investment. Start-up companies often have innovative ideas and disruptive technologies that can lead to rapid growth and market dominance. By investing in these companies at an early stage, venture capitalists can help fuel their growth and potentially reap substantial profits when the company succeeds.

A mortgage is the most suitable option for purchasing property. A mortgage is a loan provided by a bank or financial institution specifically for the purpose of buying real estate. It allows individuals to borrow a large sum of money and use the property being purchased as collateral. The borrower then makes regular payments over a set period of time to repay the loan. This option is commonly used by individuals who do not have the full amount of money needed to purchase a property upfront and allows them to gradually pay off the loan while owning and using the property.

Leasing is the most suitable option for purchasing vehicles because it allows individuals or businesses to use a vehicle for a specific period of time by making regular lease payments, without having to bear the full cost of buying the vehicle outright. Leasing provides flexibility, as it allows for upgrades to newer models after the lease term ends. It also helps to conserve cash flow and provides tax benefits. Additionally, leasing eliminates the hassle of selling the vehicle when it is no longer needed.

Wages are not an example of capital expenditures because they are considered as operating expenses. Capital expenditures refer to investments made in long-term assets that will benefit the company over a long period of time, such as buildings, trademarks, and vehicles. Wages, on the other hand, are part of the day-to-day operational costs and are categorized as operating expenses.

Property is not an example of revenue expenditures because it is a capital expenditure. Revenue expenditures are expenses incurred in the day-to-day operations of a business, while capital expenditures are investments in long-term assets such as property. Therefore, property does not fall under the category of revenue expenditures.

Venture capitalists typically offer a larger amount of financing compared to angel investors. This is because venture capitalists are professional investors who manage funds specifically dedicated to investing in high-growth potential startups and early-stage companies. They have access to larger pools of capital and are willing to invest significant amounts in exchange for equity in the company. On the other hand, angel investors are typically individuals who invest their own personal funds and may not have as much capital available to invest. Therefore, venture capitalists are more likely to provide a larger amount of financing.

Utilities are not an example of capital expenditures because they are considered operating expenses. Capital expenditures refer to investments in long-term assets that provide future benefits to a business, such as property, furniture, and machines. Utilities, on the other hand, are ongoing expenses required for the day-to-day operations of a business and are typically classified as operating expenses.

When a firm transitions from being privately held to publicly traded, it undergoes an Initial Public Offering (IPO). During an IPO, the company offers shares of its stock to the public for the first time, allowing investors to buy and sell shares on a stock exchange. This process helps the company raise capital from a broader range of investors and marks a significant milestone in its growth and development.

Factoring is the correct answer because it refers to a company purchasing the debt of another firm at a lower price than its actual worth and paying in cash. This practice is commonly used by businesses to improve their cash flow by selling their accounts receivable to a third party, known as a factor, who then collects the debt from the customers. This allows the original company to receive immediate cash and transfer the risk of collecting the debt to the factor.

Leasing is the most suitable option for purchasing equipment because it allows businesses to acquire the necessary equipment without the need for a large upfront investment. With leasing, businesses can make regular payments over a specified period of time, which helps to spread out the cost and preserve cash flow. Additionally, leasing provides flexibility as businesses can easily upgrade or replace equipment as needed. Debentures, mortgage, and share capital are not specifically designed for purchasing equipment and may not offer the same advantages as leasing in terms of cost-effectiveness and flexibility.

The statement "Share capital is secured by the assets of the business (used as collateral)" is false. Share capital represents the funds raised by a company through the issuance of shares to shareholders. It is not secured by the assets of the business, meaning that in the event of bankruptcy or liquidation, shareholders do not have a claim on the company's assets. Shareholders' claims are limited to the value of their shares and any dividends they may be entitled to.

Hire purchase is different from leasing because with hire purchase, you have the option to keep the product once you have finished paying for it. In leasing, on the other hand, you do not have the ownership rights to the product and must return it at the end of the lease term. The option to keep the product is a key distinction between the two financing methods.

Debentures are a long-term source of finance as they are long-term debt instruments issued by a company to raise capital. They are usually issued for a fixed period, typically 5 to 20 years, and carry a fixed rate of interest. Debenture holders are creditors of the company and have a claim on the company's assets. Unlike trade credit, which is a short-term source of finance, debentures provide funds for a longer duration. Leasing and working capital are also not considered long-term sources of finance as they are more related to short-term operational needs.

Angel investors are wealthy individuals who are interested in taking a role in the firm by offering their expertise and getting some ownership in the business. However, they do not have to be paid back the principal and interest like traditional lenders or creditors. Instead, they typically invest in early-stage companies in exchange for equity or a share of the profits. This allows them to potentially earn a return on their investment if the business succeeds.

Vehicles are not an example of revenue expenditures because they are considered as capital expenditures. Revenue expenditures are the costs incurred in the day-to-day operations of a business to generate revenue, such as rent, cost of goods sold (COGS), and interest on loans. However, vehicles are considered as long-term assets that are used for multiple years and provide benefits beyond the current accounting period. Therefore, the purchase or maintenance of vehicles is classified as a capital expenditure rather than a revenue expenditure.

Debentures are the most suitable option for a public company needing billions of dollars. Debentures are long-term debt instruments issued by a company to raise funds from the public. They offer a fixed rate of interest and have a specified maturity date. Unlike loans, debentures can be issued to a large number of investors, allowing the company to raise a significant amount of capital. Venture capital is typically used for startups or small businesses, while an IPO (Initial Public Offering) involves selling shares of the company to the public, but it may not guarantee the immediate availability of billions of dollars.